U.S. Presidential elections inevitably lend themselves to speculation about the potential impact on the U.S. economy and financial markets. Periods of strong or weak economic growth are always associated with the leader at the time, regardless of the president`s actual influence. Presidents, of course, do matter, particularly when it comes to major initiatives such as the tax cuts implemented under President Ronald Reagan or the New Deal under Roosevelt. The President alone is able to implement very little however without the cooperation of Congress. Consequently, it’s more informative to look at returns on the stock market under the political party combination for both the President and Congress. From the data analyzed, the combination that has corresponded with the highest average return for the S&P 500 has been a Democratic President with a Republican Congress, with an +18.2% return on average since 1928, followed by a Democratic President and a split Congress, where no single party controlled both houses. Under this configuration, the average return was +16.0%. The combination with the lowest returns was a Republican President and a Republican Congress, averaging just +2.1%. BNP Paribas noted in a similar analysis that these results should not be seen as having too much predictive value as there are far too few examples of each to be statistically significant. What’s more, the impact of the political party composition of the government is difficult to separate from other macro factors, and the business cycle does not necessarily follow the political cycle, but nonetheless they are interesting number to look at and consider. (Source: Investors Corner)

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